Spending review has major implications for public sector employment

In July 2004, the UK government announced its expenditure plans for the next three years. These have major implications for the future scale and distribution of public sector employment, and include cutting over 100,000 civil service posts.

The government’s 2004 spending review, announced by the Chancellor of the Exchequer, Gordon Brown, on 12 July 2004, has set the parameters for significant changes in the scale and distribution of public sector employment over the coming three years. Plans to cut over 100,000 civil service posts - or around 80,000 jobs after some staff have been moved from 'back office' to 'front-line' services - dominated the media headlines following the Chancellor’s announcement. The general secretary of the Public and Commercial Services Union (PCS), the civil service trade union most directly affected by the planned cuts, described them as 'carnage' and said that strike action was likely if compulsory redundancies were imposed. The spending review also set out detailed targets for efficiency gains by government departments, designed to cut the cost of administration as a share of total expenditure. However, at the same time the government outlined plans for further employment growth in other parts of the public sector. By 2008, there should be: 20,000 more teachers and 90,000 more classroom assistants; 30,000 more nurses; 12,000 more police and 20,000 community support officers.

This article looks at recent trends in public sector employment and the impact of changes in the volume and distribution of public expenditure on employment patterns, before discussing the difficulty in measuring the efficiency and productivity of public services, and the wider political and industrial relations issues raised by the 2004 spending review.

Recent trends in public sector employment

In July 2004, the Office for National Statistics (ONS) published anarticle on public sector employment which reported that in the year to June 2003, 162,000 additional public sector jobs were created, compared with an increase of 89,000 in the previous year. The growth in public sector employment was predictably concentrated in services that had benefited most from increasing public expenditure. There were 88,000 additional jobs in education and 63,000 in health. These two public services now account for almost 60% of total public sector employment, compared with 40% 20 years ago. There were also 19,000 more jobs in the civil service, and 9,000 in the police service in June 2003 than a year earlier, but job losses had occurred in social services and local authority construction.

The historical context of public sector employment trends is explored a July 2004 report from the Institute for Public Policy Research (IPPR). This notes that public sector employment in the UK declined from a peak of 7.0 million jobs in 1983 to 4.9 million in 1998, mainly as a result of the privatisation of nationalised industries. Employment in central and local government also declined, by more than 600,000 between 1992 and 1997. Under the Conservative Party governments of 1983-97, the public sector workforce in education declined by 240,000, almost the same amount that it has increased since the Labour Party government took office in 1997. In contrast, the social services public sector workforce increased between 1983 and 1992, but has declined under both Conservative and Labour governments since then.

The IPPR report explores the distinction between 'public sector organisations' and 'public services activities' in the UK in interpreting these employment trends. Public sector organisations are subject to control by national or local government, and their employees form part of the public sector workforce. Public service activities that are wholly or partly funded by central or local government, and regulated to serve public interests, may be provided by organisations classified as part of the private sector. Universities and further education colleges, for example, receive much of their funding from public sources, but their employees are not included in the data on public sector employment. Moreover, government policy on 'market-testing' over the last 15 years has increased the extent to which public sector agencies subcontract some of their activities to private sector organisations. More than 60% of the 1.3 million workforce providing residential, home-based or community social care (for example, services for children, the elderly and people with chronic diseases) are employed by more than 25,000 private sector and voluntary organisations, and are not counted as part of the public sector workforce.

Recent trends in public expenditure

The overall growth in public sector employment, and its uneven distribution between different services, can be explained by public expenditure decisions. For two years after its election in 1997, the Labour government retained the spending plans of its Conservative predecessor, and public expenditure and public sector pay hardly increased in real terms. At a time of rapid economic growth and high tax receipts, the government was able to build up large budget surpluses, reduce expenditure on unemployment benefits, and pay off a significant part of the national debt. This macroeconomic success was accompanied, however, by a developing crisis in the recruitment and retention of public sector employees, especially in the most politically sensitive areas of schools and health services (UK0003163F).

Alongside proposals for the modernisation and reform of public sector pay systems, the government increased public expenditure by more than 5% in real terms in 2000-1, by 4% in the following two years, and by almost 7% in 2003-04. Much of the growth in expenditure was allocated to health and education services, leading to an increase of almost 500,000 jobs in schools and hospitals over the last four years. As noted in The Guardian newspaper (on 13 July 2004), this shift from 'famine to feast' raised overall government spending as a proportion of GDP from its low point of 37.4% in 1999-2000, to 41.6% this year; still much lower than in many other EU Member States.

The 2004 spending review

On 12 July, Chancellor Brown told Parliament that public expenditure would increase by an average of 2.5% in the two years between 2006 and 2008, well below the previously planned increase of 4.2% in 2005-6. He confirmed an earlier commitment that expenditure on health and education would increase in real terms by more than 7% and 4% respectively over the next three years, and announced higher than average increases in expenditure on childcare places, housing, community policing, overseas aid and the science budget.

However, most of the comment on the speech, and the government documents published under the title Stability, security and opportunity for all: investing for Britain's long-term future, focused on plans for 'rigorous improvements in efficiency, releasing over GBP 20 billion a year by 2008 to spend on front-line services'. Based largely on a report produced by Sir Peter Gershon, the government argued that there was significant scope for savings in areas such as back-office functions, transactional services, procurement practices and productive time. In the light of the report, the government announced:

• agreed departmental targets for efficiency gains of 2.5% each year to 2008;

• plans for a reduction in the number of civil service posts by more than 80,000;

• detailed plans for the relocation of 20,000 posts out of London and the South East by 2010; and

• a more robust and transparent framework to ensure public accountability for savings.

Efficiency savings of this magnitude may be necessary to control the escalating budget deficit, avoid further increases in taxation, and the meet the Chancellor’s self-imposed 'golden rule' that (excluding investment) surpluses should balance deficits over the economic cycle.

Commentary

Almost all discussion of the spending review has noted that government plans have been shaped partly by the proximity of the next general election - expected in 2005. The relatively generous spending plans for services designed to meet urgent social needs are unlikely to be unpopular, and the formidable difficulties in achieving ambitious targets for efficiency gains will not be fully exposed until well into the next Parliament. The Chancellor’s claim that 'we are now seeing measurable improvements in the standards of public service delivery' will be vigorously debated over the next 12 months. The government is sensitive to criticism that large increases in public expenditure in recent years have not delivered corresponding gains in labour productivity. Most impartial observers accept that the measurement of productivity in public services is intrinsically problematic, not least because the value of public service outputs that are not sold in markets cannot easily be measured. These technical problems may be ameliorated by the findings of a current enquiry by Professor Tony Atkinson, but any recommended changes in the way that productivity is measured are likely to be subjected to intense, and partisan, political scrutiny.

The responses of employers and trade union leaders to the spending review were fairly predictable. The director-general of the Confederation of British Industry, Digby Jones, welcomed the increased spending on transport and science and innovation, and applauded the Chancellor’s 'radical and courageous efficiency plan', adding that 'Mr Brown still has to face down vested interests in the trade unions and civil service'. The general secretary of the Trades Union Congress, Brendan Barber, welcomed 'the sustained, unprecedented investment in health, education, childcare and other vital spending programmes', and the support for services to manufacturing, the boost to science and increased overseas aid. Nonetheless, he strongly criticised the 'sudden escalation and arbitrary manner of the civil service job cuts', which he said could not be implemented without undermining the quality of services and staff morale.

Opposition to the planned cuts was expressed more forcefully by Mark Serwotka, the general secretary of the largest civil service union, PCS. He argued that the chancellor had created a false divide between front-line service delivery and back-office support, and argued that the government was more interested in 'cutting numbers than focusing on public services'. In promising a vigorous defence of members’ jobs, Mr Serwotka said that 'we cannot rule out industrial action in the face of such a serious attack'. Clearly, the phasing of job losses, and the extent to which compulsory redundancies can be minimised, will influence the form of opposition by the civil service unions, and the character of relations between the government and the trade union movement more generally. (David Winchester, IRRU)